New Zealand unemployment rate likely to see small bounce from 3.9 pct to 4.1 pct in Q4, says ANZ Research

New Zealand’s unemployment rate is expected to see a small bounce from 3.9 percent to 4.1 percent in the fourth quarter of 2018, after last quarter’s very large, unexpected drop of 0.5 percentage point, according to the latest report from ANZ Research.

Further, wage inflation is expected to have firmed to 2.1 percent y/y, reflecting previous tightening in the labour market, the higher minimum wage, and a boost from last year’s nurses’ pay settlement. But underlying wage inflation is seen to continue to improve only gradually.

Looking through the noise, the labour market is expected to have been broadly stable in the December quarter, consistent with continued – but moderating – GDP growth and cautious hiring intentions in business surveys.

Employment growth is expected to soften from 2.8 percent to 2.6 percent y/y. In the quarter, employment is expected to have grown a soft 0.3 percent, with an element of pay-back from last quarter’s strong 1.1 percent q/q print. Labour force participation is expected to have remained elevated at 71 percent of the working-age population.

Nominal LCI private sector wages are expected to have risen 0.6 percent q/q, with the nurses’ pay settlement expected to provide a boost. Annual wage inflation is expected to have firmed from 1.9 percent to 2.1 percent y/y, with Q2’s increase in the minimum wage continuing to contribute; we estimate +0.2 percentage point from this.

"In light of this, we expect the labour market to tighten only very modestly over the medium term, as the net migration cycle eases. We expect to see continued, but not spectacular, employment growth – consistent with our view that it will be difficult for the economy to grow above trend," the report added.